ATO encourages early reporting

The ATO has released updated guidance on what SMSFs are required to report and when those reports should be lodged, but has reminded funds that reporting new information earlier than scheduled deadlines was beneficial.

In the guidance released on its website, the regulator stated an SMSF must report events that affect a member’s transfer balance account (TBA).

Specifically, these events are when a member commences a retirement-phase income stream, the details of limited recourse borrowing arrangement payments where the payments increase the value of a member’s interest that supports a retirement-phase income stream, compliance with a commutation authority issued by the ATO and details of personal injury contributions.

The ATO highlighted the current transfer balance account report (TBAR) deadlines and the changes that will take place to them in 2023, but added: “Any SMSF can report events as they occur and are encouraged to because it helps members manage their TBA and avoid exceeding their personal transfer balance cap.”

Additionally, it stated early reporting “helps ensure our calculation of a member’s personal transfer balance cap is based on full and accurate information, in particular for events that occur in the income year prior to indexation, and avoids incorrect excess transfer balance determinations being issued”.

It also noted early reporting should take place, ideally at the time of the rollover, for the commutation of a pension that occurs when a member rolls over the pension to another fund.

“If an SMSF member rolls their super benefit into an Australian Prudential Regulation Authority (APRA)-regulated fund and starts an income stream there – and the SMSF does not report this to us in a TBAR when it happens – a double-counting of the member’s income streams will occur,” it said.

“This is because there will be a mismatch in timing of the reporting done by the APRA-regulated fund and the SMSF.

“If the member’s pension account is being rolled over because the SMSF is wound up, the TBAR should be lodged before the fund is wound up and the account reported as closed.”

Source: smsmagazine.com.au

Resigned directors offered relief from ID requirements

Former company directors, including those of corporate SMSF trustees, will not be required to obtain a director identification number (director ID) by 30 November if they have ceased all directorships before 1 December under a new draft legislative instrument released by the ATO.

The draft instrument, ABRS 2022/D1, issued on 15 November will exclude individuals who have resigned from all directorship roles during the period 4 April 2021 to 30 November 2022 from needing to apply for a director ID.

A draft explanatory statement (ES) accompanying the draft legislative instrument stated: “The instruments will relieve particular classes of persons from the obligation to obtain a director ID.

“To ensure that affected classes of persons benefit from this relief and do not become liable to any penalties for not applying for a director ID, the instrument for resigned directors and non-individual directors under the Corporations Act must take effect from 1 December 2022.”

The draft ES also noted the timing of the release of the instrument as being close to the deadline to apply for a director ID and said: “As a consequence of the timing of the registration of this instrument, it is necessary to give the instrument made under the Corporations Act retrospective commencement from 1 December 2022.”

The move has been welcomed by the SMSF Association (SMSFA), which stated it had “strongly advocated for this exclusion” and the removal of former and resigned directors from requirements to apply for a director ID did not undermine the intent of the policy.

The SMSFA noted the draft instrument does not permanently exclude an individual from the director ID regime.

“An individual who resigns before 1 December 2022, but later becomes a director again, will still need to obtain a director ID prior to any appointment as an eligible officer,” it said.

Accurium head of education Mark Ellem also welcomed the change and said: “Whilst a bit late in the game, it’s a welcomed measure to address this particular scenario of resigned directors who have no intention of ever holding office again.”

Smarter SMSF chief executive Aaron Dunn was also supportive of the shift, but noted the negative impact of the previous position on those who had to deal with it.

“It is pleasing to see this ‘common-sense’ approach by the [ATO] registrar to this issue, albeit far too late in the process when many people have fumbled their way through the process now unnecessarily,” Dunn said.

Written by Jason Spits
Source: smsmagazine.com.au

October 2022-23 Federal Budget Summary

After a nine year absence, a Labor Treasurer has once again delivered a Federal Budget, with Dr. Jim Chalmers producing in his first budget a document that reflects the times; one that is aiming to be, in his words, ‘solid, sensible and suited to the conditions’.

And the conditions are indeed muddied by a multitude of uncertainties, from the impact of the ongoing conflict in Ukraine on global energy prices to domestic considerations, with inflation (as measured by the Consumer Price Index) not forecast to fall back within the Reserve Bank of Australia’s target range of 2% to 3% per annum until 2024-25.

Amidst these tensions the Treasurer has shaped a budget with an emphasis on fiscal restraint, while still delivering on key commitments taken to the federal election.

The following are the key announcements contained within the Budget papers that affect superannuation and retirees.

Continuation of reduced minimum pension drawdown rates

One measure that has been left untouched from the previous government is the temporary reduction in the minimum required drawdown rates for account-based pensions.

These minimum drawdown rates were halved at the start of the COVID pandemic, to provide retirees with greater flexibility in managing their superannuation account-based pensions amidst heightened financial market volatility at the time.

The Treasurer has elected to maintain these lowered drawdown rates for the remainder of the 2022-23 financial year.

Extending eligibility to Downsizer superannuation contributions

As part of a series of measures to tackle housing accessibility, the government has announced the extension of the downsizer superannuation contribution to those between the age of 55 and 59.

This measure, first introduced in the 2017 budget, was previously restricted to those aged 60 and older.

The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and these contributions do not count towards their respective non-concessional contribution caps.

By expanding the downsizer contribution eligibility to those aged between 55 and 59 this measure aims to encourage more Australians to downsize sooner, with the policy intent of increasing the availability of suitable housing for more Australian families.

This measure is scheduled to have effect from the start of the first quarter after passage of the enabling legislation.

Super funds to invest in affordable housing through Housing Accord

The budget sets out an ambitious new target to build one million new homes, over a period of five years commencing in 2024, as part of a new ‘Housing Accord’. Under this new accord the commonwealth government will work with state governments, planning authorities, developers and institutional investors to increase housing supply and relieve affordability pressures.

Under the Accord, the federal government is committing $350 million over 5 years to deliver 10,000 affordable dwellings, a commitment that is in addition to the 30,000 new social and affordable dwellings set to be delivered through the Housing Australia Future Fund.

The government has indicated that it has secured endorsements from a number of institutional investors, including superannuation funds, to be involved in the accord. While the details are as yet not fully clear, it appears that the government will ‘top up’ institutional investors with any gap between subsidised rents on these dwellings and prevailing market rents.

Deferment of change to SMSF residency requirements

The government has decided to defer the start date of a number of legacy tax and superannuation measures, to allow sufficient time for policies to be legislated and implemented.

One such deferment relates to Self-Managed Superannuation Funds. The proposed relaxing of residency requirements for SMSFs, scheduled to come into effect from 1 July 2022, will now be deferred to a later financial year.

No specific period has been specified in the budget, other than to state that it will be the financial year commencing on or after the date of the passage of the enabling legislation.

Crypto to be taxed as an asset

The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. This maintains the current tax treatment of digital currencies, including the capital gains tax treatment where they are held as an investment.

The exclusion does not apply to digital currencies issued by governments which continue to be taxed as foreign currency.

3 year audit proposal officially dead

In the 2018-19 Budget the Coalition Government announced a proposal to allow 3-yearly audits for SMSFs, rather than the current annual requirement. This was widely denounced by the SMSF industry and never moved forward as legislation. This current government has declared that this measure will not proceed.

Pensioner relief for downsizing

As part of its push to allow more Australians to ‘right size’ their housing needs as they age without undue impediments, the budget also extends some downsizing relief to older Australians on the Age Pension or a veteran’s equivalent income support payment.

The budget contains two key measures to incentivise pensioners to downsize their housing.

The first extends the assets test exemption from 12 months to 24 months for income support recipients, following the sale of their principal dwelling. This will double the time pensioners have to use the sale proceeds to acquire a new principal dwelling, without these funds being counted towards the assets test.

The second measure changes the income test, so that it will only apply the lower deeming rate (currently 0.25%) to principal dwelling proceeds when calculating deemed income for 24 months after the sale.

Encouraging pensioner workforce participation

The budget also formalises an initiative developed at the recent Jobs and Skills Summit held during September, with the government to provide some $60 million over two years to age and veterans pensioners for a once off $4,000 credit to the Work Bonus income bank of participating recipients.

The temporary income bank top-up will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800, before their pension is reduced.  This will assist pensioners who want to work, or work more hours, to do so to a greater extent before their benefits are impacted.

Lift to the Commonwealth Seniors Health Card income threshold

The income threshold for the Commonwealth Seniors Health Card will be increased  from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.

The budget also freezes social security deeming rates at their current levels for a further two years until 30 June 2024.

Where returns generated from investments held exceed these deeming rates, this measure will assist older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.

Package of reforms for the aged care system

The government will spend $2.5 billion over four years from 2022-23 to reform the aged care system, with a number of spending measures to improve the quality of care provided to recipients.

From 1 July 2023, all aged care homes will be required to have a registered nurse on-site 24 hours a day, 7 days a week. The number of care minutes residents receive will also be mandated, starting with 200 minutes of care from 1 October 2023.

A new national registration scheme for personal care workers will help strengthen and professionalise the aged care workforce, incorporating a code of conduct, ongoing training and English proficiency. 

In respect of the Home Care Packages Program, administration and management fees will be capped, and exit fees will be abolished.  This measure, in addition to additional governance measures for home care package providers, should help protect older Australians from poor service and financial harm from sub-standard providers.

Written by Harry Chemay

Deciding who gets your super after you die? Follow these three steps.

The High Court has spoken. In its decision in Hill v Zuda Pty Ltd, it has given self-managed super fund trustees much-needed clarity around a binding death benefit nomination (BDBN). The debate over how long a BDBN can last has been put to bed – it is indefinite.

The Court’s ruling also gave trustees – and their advisers – greater clarity around reversionary pensions and established that a BDBN can override pension documentation. For trustees, this good news comes with one overriding message – the trust deed is paramount, and they need to ensure it is always up-to-date.

But before going into detail, a quick backgrounder on the High Court case is necessary. [Incidentally, legal minds were puzzled it took on this case considering previous state court decisions were in unanimity on this issue.] A married couple with an SMSF inserted a BDBN in their trust deed in December 2011 to the effect that when one died, the trustee (Zuda Pty Ltd) was to distribute the whole of the deceased member’s balance in the SMSF to the surviving member.

When the husband died in 2016, his biological child (Ms Hill) from another relationship challenged the BDBN on the basis that a notice binding a trustee on how to pay superannuation death benefits expires after three years, arguing that Regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 applies to SMSFs. [This regulation stipulates how a super fund member can direct their fund trustee to handle their death benefit. It also says that a BDBN will expire three years after the day it was first signed.]

The High Court begged to differ with Hill, stating this regulation did not apply to an SMSF and dismissed the appeal.

The consequences flow far beyond abolishing the three-year time limit. It means a BDBN can make a pension reversionary mid-stream. It also means a BDBN can override pension documentation, and that has definite benefits for trustees.

Both pension issues have been a source of conflict for the industry for some time.

The ability to add or remove a reversionary beneficiary can often require a pension to be stopped and restarted. This involves some administration and cost and can also trigger unintended consequences. Issues have also arisen where the pension documents have instructions to be reversionary, yet a new BDBN says the benefits are to go to someone else.

This court decision provides clarity that a BDBN can be everlasting and that they can be the ultimate estate planning document, trumping instructions in the pension documents. This provides certainty and clarity on how a member’s benefits are to be dealt on their death. More importantly, the Hill v Zuda case highlights the importance of what your SMSF trust deed says. It is the ultimate law, setting out the rules on what the fund can and cannot do.

Although the court’s ruling has established the primacy of the BDBN, it does not give trustees carte blanche to do what they like with their superannuation death benefits, with the legislation still requiring these benefits to be paid in a prescribed way. In essence, this means it can be paid to your spouse or de facto spouse, any child of the deceased or a person who is dependent on the deceased at the time of their death (interdependency is defined as having a close personal relationship, living together, financial support and/or providing personal care).

For those who want to step outside this legislative stricture and leave their death benefits to someone else, there is an option. They can make their legal representative (executor) their beneficiary, allowing the super proceeds to be distributed according to their wishes via their will. You will need a valid BDBN in place to direct your super into your estate and your will needs to then direct what is to happen to your superannuation benefits. The person’s will alone will not be enough for this to work.

Do look before you leap. Directing your super in this way will mean that your superannuation will be caught up if there are any estate disputes.

Whatever decisions SMSF members decide to take regarding their death benefits, there are some important guidelines to follow:

  • First, have your trust deed reviewed and, if required, updated. As the court ruling determined, the deed is all important.
  • Second, ensure there is no conflict between a BDBN and pension reversion documentation. If there is, use a BDBN as the vehicle for dictating your wishes about your death benefits.
  • Third, always ensure your documentation is up to date, and be prepared to make changes as personal circumstances change. When in doubt, seek professional legal advice. Remember, it’s too late after you have shuffled off this mortal coil.

Opinion piece written by John Maroney, CEO, SMSF Association. 

SMSF establishments hit 5-year high

SMSF establishments have seen further growth in the 2021–22 income years, with younger trustees driving the trend, according to the latest ATO statistics.

The ATO has published its SMSF statistical report for the June 2022 quarter with the total number of SMSFs now at 603,432. This represents a 4.4 per cent jump in the total number of funds since June 2021.

Total members of SMSFs increased from 1,075,799 at June 2021 up to 1,123,430 at the end of 2021–22.

The 2021–22 income year saw further growth in SMSF establishments with a total of 27,713 funds established during the year. This was the highest number of establishments since the 2016–17 income year when 30,282 funds were set up.

The majority of new funds are being established by younger trustees with individuals under 50 accounting for 59 per cent of new set ups.

The 35 to 44 age group accounted for almost a third of new establishments alone at 32.2 per cent.

The statistics also indicate that around a third or 33.7 per cent of all SMSF members are under the age of 55.

In its recent 2022 Class Annual Benchmark Report, software provider Class noted that the average age at establishment has fallen from 51 years back in 2006 down to age 44.

It also noted there has been a significant spike in fund establishment during the 2022 financial year for funds with balances of less than $50,000.

Commenting within the report, Stake chief executive Matt Leibowitz said while SMSFs may have traditionally been set up by older Australians, there continues to be significant growth in fund establishments among younger, self-directed investors who want more control over their superannuation.

“We’re seeing firsthand that younger people are more active in making decisions relating to their super compared to previous generations of the same age,” said Mr Leibowitz.

“They feel empowered to make their own investing choices for the benefit of their retirement. They have access to more information about SMSFs and the financial markets than ever before. In this digital age, establishing an SMSF to build retirement assets is not as difficult as it once was.”

Source: SMSF Advsier

Director ID requirements for SMSF members

If you have a self-managed super fund (SMSF) with a corporate trustee, then you need to be aware of the new requirement to apply for and obtain a Director Identification Number (Director ID).

The introduction of Director IDs is part of ongoing attempts to modernise and streamline record-keeping systems used by the government, including details on directors of companies. Essentially this new system is designed to improve the integrity of records that are kept.

The measure is also part of a wider government crackdown on illegal activity. It is hoped that recording the identity of company directors will increase the transparency of companies and discourage illegal activity.

While all directors of companies and registered Australian bodies are affected, this article will focus solely on how these changes relate to SMSFs with a corporate trustee and the process required to comply with the new requirements.

Keep in mind that all members of an SMSF with a corporate (company) trustee are required to be a director of that company.

Also note that the same registration requirements apply if you are acting as a trustee (director) in place for another person under an authority given to you (such as an enduring power of attorney or guardianship arrangement), or where you are acting as an alternate director for a company.

What is a Director Identification Number?

A Director ID is a unique 15-digit identification number given to a director after they have verified their personal information and identity with the Australian Business Registry Services (ABRS).

As mentioned earlier, a Director ID will then be used to verify the identity of directors when dealing with government departments. Overall, it should assist in streamlining the process to identify an individual.  

Once issued, the Director ID then ‘attaches’ to the applicant and will remain in place throughout their life. So only the one Director ID can be applied for and issued per individual.

A Director ID will remain attached to your records even if you resign as a director or leave Australia.  

When do you need to apply?

This will depend on when you were appointed as a director of the corporate trustee for your SMSF.

Before 31 October 2021: If you were appointed as a director before 31 October 2021, you will need to apply for your own unique Director Identification Number by 30 November 2022.

Between 1 November 2021 and 4 April 2022: If you were/are appointed as a director between these dates, you will need to apply within 28 days of being appointed.

If you are setting up an SMSF with a corporate trustee after 4 April 2022, then you will need to apply for and obtain your own unique Director ID before the SMSF and corporate trustee can be established. 

It is important to note that you will need to go through the Director ID application process yourself. No one else can complete the application process for you. If you have a professional that assists you with your SMSF, such as an accountant or tax agent, then they are not allowed to apply for a Director ID for you. It would however be prudent to inform your accountant or tax agent once you have obtained your Director ID.

How to apply

Applications can be made using one of the following processes:

  • Online through the ABRS website
  • Telephone
  • Paper application form.

The information required to complete the application will depend on which process you use. Details of these requirements are provided below.

Online application through the ABRS website

This is the quickest way to apply for a Director ID, but you must have a myGovID account already set up. Note that this is different to a myGov account. 

myGovID is an app that you can download to your phone or tablet designed to confirm your identity with different online government departments. 

Step 1: If you don’t have a myGovID set up, click here first and follow the required process. Once completed, go to Step 2.

Step 2: If you already have a myGovID set up, click here. You will then need to login to myGovID and follow the required process under ‘Apply now with myGovID’.

Step 3: Provide relevant details and supporting information.

Information you will need to have at hand:

  • Your Tax File Number (TFN)
  • Details of your residential address
  • Two sources of identity verification documentation including:
    • Bank account details (BSB and account number) where interest has been earned or where a tax refund has been paid into by the ATO
    • An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
    • A dividend statement from the last two years. You will need your investor reference number
    • A Centrelink payment summary
    • A PAYG payment summary.

Telephone application

Step 1: Phone 13 62 50 from within Australia. If you are overseas, phone +61 2 6216 3440.

Step 2: Provide all relevant information as requested during the call.

Information you will need to have at hand:

  • Your Tax File Number (TFN). This is optional but using your TFN can expedite the application process
  • Details of your residential address
  • Two Australian identification documents including:
    • One primary document: Australian full birth certificate, Australian passport, Australian citizenship certificate, ImmiCard or Visa
    • One secondary document: Medicare card, Australian driver’s licence
  • Confirm your identity by responding to two questions based on information already known about you
  • Acceptable identity verification documentation including:
    • Bank account details (BSB and account number) where interest has been earned or a tax refund has been paid by the ATO
    • An ATO notice of assessment from the last five years. You will need the date of issue and the reference number. See the top right of the assessment
    • A dividend statement from the last two years. You will need your investor reference number
    • A Centrelink payment summary
    • A PAYG payment summary.

Paper application form

Step 1: Go to the ABRS website and download this form.

Step 2: Gather the information specified on the form.

Step 3: Complete the form with all required information.

Step 4: Sign the declaration at the bottom of the form.

Step 5: Send the form with certified copies of required documents to:

Australian Business Registry Services
Locked Bag 6000

Who else should I notify about my Director ID?

You will need to provide your Director ID to any Company that you are currently a Director of; usually to the Company Secretary. Of course, if the only Director position you hold is for a closely held Company or a Company acting as trustee for your SMSF, then there really is no one to pass this onto as you would usually fill all those roles. 

There is no obligation to provide your Director ID to any other person, government department or organisation at this stage. It is expected that at a future time, currently late 2023, that you will need to provide these details to ASIC.  For now, ASIC will continue to use the existing company registry systems that they have in place. Director IDs will form part of the new Australian Business Registry System (ABRS) some time in 2023. You will not need to provide your Director ID to any broker or fund manager. These service providers should already have all the information that they need for your entity. 

It may however be worth letting your Accountant or fund Administrator know that you now have your Director IDs. 

Final thoughts

The Director ID system does not replace any of the existing requirements around updating company records. The existing requirements to inform and update ASIC on changes to company details will continue.

You may want to consider applying for your Director ID before the required ‘due date’ as there will be a large number of applications around those dates. It would be prudent not to leave your application to the last minute.

Written by Garth McNally
Source: Superguide


Hottest new super strategies to help your kids and spouse

Recontribution tactics made possible by rule changes are a game changer for older Australians and their families. 

The 2021 federal budget introduced sweeping changes to superannuation, most of which have become law. Two changes – removing the work test requirement for non-concessional super contributions for people between 67 and 75 and extending the eligibility for individuals under 75 to make non-concessional contributions using the bring-forward rules – are rewriting the rule book for recontribution strategies relating to estate planning and spouse equalisation.

First, the changes. Under the old rules, the bring-forward arrangements were available only to individuals aged 67 or less. That has been extended to those aged 74 or less on July 1 of a financial year. But no other eligibility requirements to access the bring-forward arrangements have changed.

It means individuals must have a total superannuation balance at the previous June 30 of less than $1.48 million to be eligible for a three-year bring-forward period and can contribute up to $330,000 of non-concessional contributions. Those with balances between $1.48 million and $1.59 million are eligible for a two-year bring-forward period and can contribute up to $220,000 of non-concessional contributions. Individuals with balances between $1.59 million and $1.7 million cannot use the bring-forward rule but can still contribute up to $110,000.

Regarding changes to the work test requirement, it means those aged 67-74 no longer need to meet a work test to be able to contribute to super. Also, there continues to be no work test requirement to receive Super Guarantee or award contributions.

But there is a small catch. For individuals wanting to claim a tax deduction for their personal super contributions, there is no change to the work test definition. This means individuals must work at least 40 hours in 30 consecutive days in the financial year the contribution is made to be able to claim a tax deduction for their personal contribution.

So why are these two changes having such an impact? In simple terms, a recontribution strategy involves a member withdrawing a tax-free amount from their super account, and then recontributing it to their super account as a non-concessional contribution. It typically involves withdrawing an amount from super that comprises a taxable component, or a proportionate amount of taxable and tax-free amount, and then recontributing it as a non-concessional contribution. The result is the taxable component is converted to a tax-free component.

With the work test no longer being a barrier for individuals aged 67-75 making a non-concessional contribution, it means many can use this strategy.

Helping adult kids

Although the taxable and tax-free status of your super benefit may not matter much if you are over 60 (as a lump sum or super pension paid to you after 60 is typically tax-free), it does matter on your death. That’s because super death benefits that are paid to a non-tax dependant (such as an adult, non-financially dependent child), are subject to tax, with tax being deducted from the taxable component of your benefit.

As a recontribution strategy reduces the proportion of your benefit that is classified as a taxable component and increases the proportion that is classified as a tax-free component, it has the effect of reducing the tax that may otherwise be payable when the benefit is paid to a non-tax dependant.

Helping your spouse

Recontribution strategies can also be used to even up balances between spouses. This can be particularly useful if one spouse is getting close to the transfer balance cap and the other spouse is well under their cap. Removing funds from one and adding them to the other can maximise the combined amount that can be transferred to the pension phase when the couple retires.
However, it’s important to note recontribution strategies are subject to the same contribution caps and total superannuation balance limits that normally apply to non-concessional contributions.
It’s also important to be aware of the 75 age limit and whether the recontribution strategy involves the full commutation of an existing pension. If the latter is the case, you will also need to receive at least a pro rata pension payment before the commutation and, if you are receiving the age pension, before implementing the strategy you must consider what impact, if any, it could have on your age pension entitlements.
For SMSF members, if the withdrawal is likely to require the sale of one of more fund assets, it is also important to consider and factor in any potential CGT and other transaction costs such as brokerage and conveyancing costs.
A recontribution strategy can be a powerful estate planning and spouse equalisation strategy, but there can be many traps for the unwary. Seeking professional advice could be the smart option.
Opinion piece written by John Maroney, CEO, SMSF Association. 

Experts highlight complexities with crypto and SMSFs

With SMSF investors increasingly incorporating cryptocurrency into their funds, it’s important to take note of the complexities involved in the merging of the two worlds.

Based on the latest ATO statistics, SMSFs held $227 million AUD in cryptocurrency assets at 31 December 2021, with that amount continuing to grow.

Speaking ahead of the SMSF webcast on cryptocurrencies and SMSFs, Shane Brunette, CEO and co-founder of CryptoTaxCalculator says that while the popularity of cryptocurrencies involved in SMSFs is increasing, there isn’t enough awareness about the nuances that are required to compliantly incorporate one into the other.

“SMSF professionals will need to carefully manage the combination of crypto and SMSFs. This is to ensure that any and all crypto assets are valued correctly and that there is enough evidence to satisfy the sole purpose test”, Brunette said. “Providing evidence of asset ownership and activity for the purposes of satisfying the sole purpose test can be tricky”, he states.

According to the ATO’s current guidelines, SMSFs can invest in crypto if it is allowed under the fund’s deed and in accordance with its investment strategy. They have to demonstrate clear ownership of the crypto.

“Legal documentation is critical, especially for non-exchange wallets which have no ownership details recorded,” says Harrison Dell, director of Cadena Legal.

Separate from the need to comply with the ATO’s current guidelines, SMSF trustees also need to minimise risk to clients’ portfolios.

“With crypto, volatility is really important when assessing risk levels. If the crypto that your clients wants to invest in has historically seen large fluctuations, it could heighten the level of risk involved. This is where the discussion towards a diversified portfolio comes into play”, says Brunette.

“We expect this space to get much bigger and continue to change, as listed investments now track crypto indexes like Monochrome or DeFi alternatives like $DPI (DeFi Pulse Token),” said Dell.

As the space grows, the importance of appropriate legal documentation surrounding proof of assets, ownership of wallets, and tax records also increases. The amount of record-keeping required to stay compliant can become very burdensome and may increase as tax reforms are expected in coming years. Fortunately, crypto tax software exists to reduce this manual workload.

Complexities surrounding crypto, potential portfolio risks, record-keeping requirements, and practical methods to achieve compliance will be discussed in the upcoming webcast hosted by SMSF Adviser. 

The webcast takes place on Tuesday the 23rd of August with Shane Brunette and Harrison Dell. 

Source: SMSF Adviser

ATO releases new trustee guide on SMSF windups

The Tax Office has released its latest lifecycle guide for SMSFs which provides information on how to wind up an SMSF correctly.

As part of its series of lifecycle publications for SMSFs, the ATO has published another guide for SMSFs this week focused on winding up an SMSF.

The guide includes considerations for an exit plan, obligations when winding up, and a checklist.

The ATO said it is important that SMSFs have an exit plan for their fund, even if they are not intending to wind up now so that they are ready for any unexpected events.

The guide states that trustees should consider the individual circumstances of their fund and its members and ensure that each trustee agrees with the exit plan.

“Ensure the agreement with the exit plan is recorded, for example by documenting the decision in meeting minutes and having the trustees sign it,” the guide said.

It also explains the importance of checking the trust deed to see whether there are rules about how to handle specific life events.

As part of the exit plan for the fund, the guide states that trustees should consider the members’ instructions for dealing with their benefits upon their death including the validity of binding death benefit nominations.

They should also consider whether to appoint an enduring power of attorney, the estimated costs of winding up, the liquidity of the fund’s assets for making rollovers and paying benefits, and final costs.

Other aspects which need to be considered are whether the fund is SuperStream-ready to enable the roll out of benefits and who will keep the fund’s records once the fund is wound up, the guide explained.

The guide also provides a detailed step-by-step guide for winding up a fund and reminds SMSF trustees to leave closing the fund’s bank account till last.

“If you close it too early this can delay the wind‑up process,” the ATO warns in the guide.

“Only close your SMSF bank account or accounts after you have paid all final liabilities, received all final refunds from us, completed rollovers using SuperStream, and received confirmation from us that your fund has been wound up.”

This is the second SMSF lifecycle publication the ATO has published. It follows the release of the ATO’s ‘Starting a self-managed super fund’ guide in December last year.

Source: SMSF Adviser

ATO quarterly statistical report

The total value of SMSF assets has climbed to $892 billion during the 12 months to March, according to the latest ATO statistics.

The ATO’s SMSF Quarterly Statistical Report indicates there were 605,469 SMSFs at the end of March — an increase of 17,631 funds since March in 2021.

Total members of SMSFs jumped from 1,102,313 members in March last year up to 1,135,026 in March this year.

Total Australian and overseas SMSF assets increased $95.96 billion up to $892.04 billion over the 12 months to the end of March 2022.

The top asset types held by SMSFs in terms of value continue to be listed shares, which account for 28 per cent of total estimated SMSF assets and cash and term deposits at 17 per cent.

SMSFs slightly reduced their allocation to cash in the 12 months to March, however, with the total assets held in cash dropping from $149.29 billion down to $146.96. Assets in listed shares increased 12.6 per cent to $245.26 billion.

Over the past five years, the amount SMSFs have invested in overseas shares has seen a significant jump, with the asset class doubling in total value.

Collectables have also seen a sizeable jump over a longer five year period, increasing from $355 million back in March 2017 up to $525 million in March this year.

To view the ATO’s SMSF quarterly statistical report, click here

Source: SMSF Adviser